The exchange rate elasticity of import prices across the euro area

This section examines the responsiveness of the aggregate price of goods imported from outside the euro area to nominal exchange rate fluctuations across the euro area. It presents estimates of price to exchange rate elasticities disentangling the effects of the bilateral euro exchange rate against the US dollar, and the euro nominal effective exchange rate against a basket of currencies of non-euro EU Member States and a basket of the currencies of a selected group of other countries. The empirical analysis suggests that the overall exchange rate pass-through differs significantly across euro area Member States. As expected, the magnitude of the elasticities is lower in the short term than in the long term for most Member States. In the long term, the point estimates of the production costs of the imported goods and exchange rate are similar in line with economic theory, but in the short term the point estimates for the former tend to be larger than those for the latter. Finally, the US dollar affects the aggregate import price of goods primarily through the import of oil in most Member States